Private Equity Played Large Role In Rush Of Initial Public Offerings (IPO) So Far In 2013

Traders working on the floor of the New York Stock Exchange, Oct. 3, 2013. Photo: Reuters/Brendan McDermid

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Initial public offerings (IPO) in the United States have taken off this year, with October seeing the most IPOs since 2007, as 33 companies raised more than $12 billion, the Wall Street Journal reported Monday.

A key player is the private equity industry. Many private equity firms received money from IPOs to pay back debt that debut companies owed them, and 41 percent of U.S. offerings this year have involved private equity-backed firms, according to Dealogic.

In a recent report, global consultancy Ernst & Young Global Limited noted that private equity firms are holding onto their companies for longer than usual, but added that the global IPO pipeline has grown rapidly.

“PE-backed activity peaked in the second quarter of 2013, when sponsored firms raised US$14.0b across 42 IPOs, making it the most active three-month period of the last two years,” said a report summary.

Even as fears over Federal Reserve tapering mounted in September, investors remained relatively confident. The $21.7 billion raised from April to October this year represented a 77 percent boost in funds raised by private equity launches, compared to the same two quarters in 2012.

Although American IPOs dominated, Europe’s IPO market picked up its pace, with 16 more deals in the first nine months of 2013, relative to last year, with total deal value more than quadrupling.

That’s a surprising level of turnaround, according to Ernst & Young (E&Y). Europe has seen a slow recovery from economic weakness this summer, but many investors are still wary of the continent.

“The second quarter was really very, very strong in the developed world,” said Michael Rogers, a private equity specialist at Ernst & Young, in a video interview, though he flagged weakness in the third quarter.

The pipeline isn’t drying up anytime soon, too. E&Y said more than 110 companies prepared for IPOs by filing paperwork in the second and third quarters of 2013, doubling the rate from 2012. About 70 companies are in active registration, and could raise more than $17.7 billion.

“The opportunity is there for a very robust 2014,” added Rogers.

The health care and financial sectors were particularly healthy for public launches.

Private equity-backed companies who launched this year include Container Store Group Inc. (NYSE:TCS), which went public last Friday at $18 per share, perfume seller Coty Inc (NYSE:COTY), and drug researcher Quintiles Transnational Holdings Inc (NYSE:Q).

Private equity firms like the Blackstone Group L.P. (NYSE:BX) and TPG Capital, LP snapped up firms before and during the financial crisis, and are still holding weighty portfolios of companies they manage. Buoyant stock markets this year have led to highly valued exits, framing an attractive window for private equity firms who have held onto companies for longer than usual.

See a brief list of the year’s biggest private equity-backed U.S. IPOs in the first six months of 2013 here, by peHUB, a Thomson Reuters publication. Renaissance Capital maintains a useful weekly calendar of upcoming U.S. IPOs.

One major private-equity launch is the debut of Extended Stay America, a major hotel operator, set to price at $18 to $21 per share in a launch next week.

In IPOs more broadly, one of the most anticipated launches will be Twitter’s, which becomes public on Thursday. Chinese e-commerce giant Alibaba is also expected to launch in coming months in an IPO that should dwarf Twitter's in value.